Government plans fresh FAME-II subsidy boost for electric two-wheelers

The Ministry of Heavy Industries is planning to increase the FAME-II subsidy outlay for the electric two-wheeler segment by Rs 1,500-2,000 crore to sustain the momentum for segment penetration before the scheme runs out by the end of the financial year 2024.

Following a brief disruption after the subsidy correction a few months ago, demand for electric two-wheelers has rebounded, and the government may soon exhaust the Rs 5,124 crore outlay. The plan to infuse funds is that the scheme should have enough funds to last until March 2024, and the proposal is currently being discussed with key stakeholders, including the Finance Ministry, Niti Aayog, and the MHI as the nodal ministry.

Electric scooter sales for the first eight and a half months of 2023 are close to 6 lakh, whereas overall EV sales are pegged at more than 1 million units, showing strong growth in sales of electric vehicles. Subsidies have already been distributed to approximately 80 percent of the scheme's target of one million electric two-wheelers, according to senior officials at the MHI. 

"Strong growth in electric two-wheelers, followed by a spike in sales of electric three-wheelers, passenger car EVs, and a good uptick in passenger EV fleet sales, is leading to the FAME-II subsidy kitty shrinking ahead of its time," a senior government official told our sister publication Autocar Professional. 

With more electric two-wheeler options emerging with newer, lower-priced models as the festive season approaches, we will see a faster conversion from ICE to EVs, and demand is likely to increase further, putting pressure on budgetary outlay, government officials said.

For OEMs to qualify for the scheme, at least 50 percent of the vehicle value for electric two-wheelers, three-wheelers, and four-wheelers must be added in India, while electric buses must have 40 percent localisation. 

Union Minister of Heavy Industries Mahendra Nath Pandey stated that the government is following through on its promise of sustainable transportation solutions in India, and electric two-wheelers are leading from the front. "As demand for E2W grows, the government is committed to providing the industry with the support it needs to ensure sustainable growth and reduce carbon emissions," Pandey added.

MHI increased the FAME-II subsidy budget for electric two-wheelers from Rs 2,898 crore to Rs 5,172 crore in FY23, resulting in approximately 7,10,000 electric two-wheelers receiving FAME-II subsidies by the end of 2022. The FAME-II scheme was approved with an outlay of Rs 10,000 crore for a three-year term starting April 1, 2019. 

The total subsidy provisioned during the launch was Rs 10,000 per kWh. However, due to low demand for electric two-wheelers during COVID-19, the subsidy was increased to Rs 15,000 per kWh. This was rolled back to Rs 10,000 per kWh in June 2023, with the caveat that the maximum subsidy cap was reduced from 40 percent to 15 percent for vehicles up to Rs 1,50,000 as the maximum ceiling price for the vehicle.